Hilcorp sees promising future in Cook Inlet

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Some could mistake talk of a Cook Inlet hydrocarbon renaissance as simple rhetoric, an energy company public relations campaign, or a way to coin the industry buzz in the area.

But where some might see more buzz than results, John Barnes sees it a different way.

“I just look at it as business,” Barnes said in a recent Clarion interview. “We’re in the business to go out and fix wells, drill wells, get production up in fields and I don’t really care what they call it — to us it is just business.”

And, anyone looking at Hilcorp’s bottom line in the Cook Inlet can see that Barnes — the company’s senior vice president of exploration and production in Alaska — means business.

Production across the company’s oil assets is up, in some cases drastically. In that aspect, Hilcorp’s venture into the inlet, lead by Barnes, has been similar to the fate of the inlet itself — renewed investment in old infrastructure and legacy fields leading to increased production and optimism.

“I can’t speak for the other operators, but we are here because we believe we can grow production in our assets and I think we are demonstrating it more and more, day by day, month by month as time goes by,” he said.

Lately, talk of increasing production from the inlet has been dominated by thinking about new exploration and tapping into undiscovered areas of resource, but Barnes emphasizes a second way — reworking and reinvesting in older fields.

Since Hilcorp has moved into the area it has quickly become one of the dominant players by purchasing Chevron and Marathon’s assets and setting a goal to double production.

Spread across four fields — McArthur River, Granite Point, Trading Bay and Swanson River — the company’s oil production is up a combined 448 percent since January 2012.

Spread across all of its fields, gas production is also up 160 percent since January 2012. Most of that increase came from the Deep Creek unit.

Most of the oil production increase has come from the Swanson River field, which saw a 390-percent increase since January 2012.

“It is like most of the fields — one that had been in decline mode for a period of time and when that happens there are opportunities that are either knowledgeably not pursued because of corporate economic hurdles,” Barnes said. “Or they are just missed because the focus is maybe on efficiency of operations as opposed to finding opportunities to increase production.”

Hilcorp has employed the use of newer, more efficient tools that help recomplete and work over a well than the tools companies had to work with in the past, Barnes said.

“Swanson for several reasons received a good amount of focus, but other assets were worked as well and probably the best example there would be the Happy Valley field, which had three wells drilled, two new pool discoveries made, basically new gas opportunities made,” he said.

Efforts have also been made at offshore assets, but that cost structure is higher and getting the right tools in place is more difficult, he said. Hilcorp has moved some of the legacy drilling rigs off those platforms to make room for new rigs or built-for-purpose rigs from the Lower 48, he said. Those new drilling accessories should arrive in the spring and summer of this year, he said.

“In reality, even on the west side of the field, which has smaller gas accumulations that we’ve worked, every one of the fields has been worked to some degree,” he said. “Bigger fields, bigger prizes; smaller fields, smaller prizes but they are still prizes nonetheless.”

Barnes also credits the company’s success with its desire to operate alone. The company wants sole ownership and control of its assets. Often times, Barnes said, working interest owners are not always aligned and that can slow development. Hilcorp would “rather not see development slow down,” he said.

Whether that development will mean more oil than gas is up in the air, he said. Cook Inlet’s stacked pays have created attractive fall-back positions for oil exploration, Barnes said. But companies have to watch their costs on producing gas considering the current lucrative market price for oil, he said.

“Our intent is to make money either way,” he said. “Oil or gas, both are good markets and if your cost structure is right, if you are finding development, cost is right, you will make money either way. The inlet is a good basin because you have a lot of stacked pay.”

Going forward, Barnes said industry watchers can expect more of the same from the company, perhaps with better results once offshore production meets the emphasis placed there.

“We focus on those existing producing assets because statistically your risk and your opportunities there are very favorable,” he said.

Barnes, a former executive with CH2M Hill and Marathon earlier in his career, said it is nice to see activity pick up in the inlet, but he’d like to see an equal strengthening in the contractor workforce.

“Continuing to try to find ways to train students as they are getting out of school, whether it is craft or professional areas, whatever – just try to renew the workforce,” he said. “Long term, I believe that Hilcorp will be here and long term we are going to need more people that are trained and are able to work in the oil and gas business. And again, that’ll be good for the state.”

And what of the future of the inlet and its resources?

“The only thing I know is that no field ever gets discovered until it gets drilled and there has not been any significant exploration drilling in the inlet for a long time,” he said. “So frankly there’s been a lot of talk about it, but you’re starting to see movement in the right direction.”